Oil drilling rig Polar Pioneer. If crude prices continue to rise, GCC governments may need to react. Elaine Thompson/AP
Oil drilling rig Polar Pioneer. If crude prices continue to rise, GCC governments may need to react. Elaine Thompson/AP

Higher oil prices may present a challenge to GCC



For the GCC, 2017 was a year of record primary market issuance, elevated geopolitical instability and credit rating downgrades.

Qatar, Oman and Bahrain all faced ratings downgrades while the unexpected boycott of Qatar by its Arabian Gulf neighbours and others and heavily publicised anti-corruption measures in Saudi Arabia both caused shockwaves in the markets.

Last year was also one of fiscal consolidation for the GCC with overall gross domestic product (GDP) growth falling to 0.2 per cent primarily due to oil production cuts, which more than offset the recovery in non-oil GDP growth of 1.8 per cent. Oil reversed its negative trajectory halfway through 2017, trading at a two-year high by year end and prices have remained robust throughout 2018 averaging $68/barrel (up 12 per cent year-to-date) and proving supportive to ongoing fiscal consolidation.

While this recovery has provided some reprieve to GCC governments’ budgets, materially higher oil prices also present a major challenge to the region should reform momentum slow. Following the implementation of subsidy and spending cuts, governments are pursing various revenue-raising measures including the introduction of VAT in January 2018. Most GCC countries also announced planned privatisation programmes aimed at increasing the role of the private sector in the economy. While the continued implementation of these measures is expected to reduce budget deficits, which peaked in 2016, the fiscal break-even oil price for most GCC countries, with the exception of Kuwait and Qatar, remains above current levels.

The 2018 budgets that have been announced by GCC countries, particularly Saudi Arabia, are expansionary as the pace of fiscal consolidation eases, given higher oil prices and production cut agreements with Opec. Since improving oil prices may compromise the momentum of government-led reforms, sustainable growth of the region is solely dependent on its diversification efforts. Following the oil price collapse in 2015, GCC countries have initiated several ambitious reform programmes that focus on the role of private sector, foreign direct investment and diversification of non-hydrocarbon sectors. Given the stabilisation in oil and improvements in fiscal deficits our main concerns revolve around the willingness of governments to pursue diversification strategies as well as maintain a steady pace of implementation of these critical reform agendas.

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Will the GCC take this as an opportunity to further improve its reform agenda or will higher oil price decrease the momentum of economic reform?

Activity in the primary market accelerated since the start of 2017 with issuances of $110 billion, the vast majority of which have been sovereign. This acceleration was necessitated by the persistent need to fund fiscal deficits because of lower oil prices and was comfortably met by non-GCC investors, who absorbed more than 75 per cent. Although the borrowing needs across the region remain large, we expect the regional sovereign primary market activity to slowdown in the second half of 2018.

Issuance statistics for deals allocated in 2016-2018 have drawn the attention of international investors and tested the market’s ability to absorb a significant uptick in bond issuance. Growth in the new investor base has increased investor understanding of the region, improved funding conditions and market liquidity, enhanced price discovery and has paved a way for GCC corporates to enter the international debt market and diversify their funding sources.

Given the current macroeconomic backdrop, recent primary deals have come at a substantial concession over the outstanding debt, driving bond yields higher. On a relative value and risk adjusted basis, regional bond yields remain attractive compared to other emerging markets. Oman’s 10-year bond, rated investment grade by Moody’s and Fitch, offers a yield of 6.39 per cent while Turkey, a high yield issuer, trades at 6.37 per cent.

Given the improving macro fundamentals in combination with attractive valuations, we see room for attractive returns on regional debt in the second half of this year, provided regional governments maintain their focus structural reforms.

Usman Ahmed is head of investments at Emirates NBD Asset Management, a member of The Gulf Bond and Sukuk Association

The Limehouse Golem
Director: Juan Carlos Medina
Cast: Olivia Cooke, Bill Nighy, Douglas Booth
Three stars

COMPANY%20PROFILE
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Citadel: Honey Bunny first episode

Directors: Raj & DK

Stars: Varun Dhawan, Samantha Ruth Prabhu, Kashvi Majmundar, Kay Kay Menon

Rating: 4/5

Easter%20Sunday
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Disclaimer

Director: Alfonso Cuaron 

Stars: Cate Blanchett, Kevin Kline, Lesley Manville 

Rating: 4/5

Business Insights
  • Canada and Mexico are significant energy suppliers to the US, providing the majority of oil and natural gas imports
  • The introduction of tariffs could hinder the US's clean energy initiatives by raising input costs for materials like nickel
  • US domestic suppliers might benefit from higher prices, but overall oil consumption is expected to decrease due to elevated costs
Tips for taking the metro

- set out well ahead of time

- make sure you have at least Dh15 on you Nol card, as there could be big queues for top-up machines

- enter the right cabin. The train may be too busy to move between carriages once you're on

- don't carry too much luggage and tuck it under a seat to make room for fellow passengers

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COMPANY PROFILE

Company name: Letstango.com

Started: June 2013

Founder: Alex Tchablakian

Based: Dubai

Industry: e-commerce

Initial investment: Dh10 million

Investors: Self-funded

Total customers: 300,000 unique customers every month

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Company name: baraka
Started: July 2020
Founders: Feras Jalbout and Kunal Taneja
Based: Dubai and Bahrain
Sector: FinTech
Initial investment: $150,000
Current staff: 12
Stage: Pre-seed capital raising of $1 million
Investors: Class 5 Global, FJ Labs, IMO Ventures, The Community Fund, VentureSouq, Fox Ventures, Dr Abdulla Elyas (private investment)

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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COMPANY PROFILE
Name: Almnssa
Started: August 2020
Founder: Areej Selmi
Based: Gaza
Sectors: Internet, e-commerce
Investments: Grants/private funding

Electoral College Victory

Trump has so far secured 295 Electoral College votes, according to the Associated Press, exceeding the 270 needed to win. Only Nevada and Arizona remain to be called, and both swing states are leaning Republican. Trump swept all five remaining swing states, North Carolina, Georgia, Pennsylvania, Michigan and Wisconsin, sealing his path to victory and giving him a strong mandate. 

 

Popular Vote Tally

The count is ongoing, but Trump currently leads with nearly 51 per cent of the popular vote to Harris’s 47.6 per cent. Trump has over 72.2 million votes, while Harris trails with approximately 67.4 million.

Kanguva
Director: Siva
Stars: Suriya, Bobby Deol, Disha Patani, Yogi Babu, Redin Kingsley
Rating: 2/5
 
COMPANY%20PROFILE%20
%3Cp%3E%3Cstrong%3ECompany%20name%3A%20%3C%2Fstrong%3EAlmouneer%3Cbr%3E%3Cstrong%3EStarted%3A%3C%2Fstrong%3E%202017%3Cbr%3E%3Cstrong%3EFounders%3A%3C%2Fstrong%3E%20Dr%20Noha%20Khater%20and%20Rania%20Kadry%3Cbr%3E%3Cstrong%3EBased%3A%20%3C%2Fstrong%3EEgypt%3Cbr%3E%3Cstrong%3ENumber%20of%20staff%3A%20%3C%2Fstrong%3E120%3Cbr%3E%3Cstrong%3EInvestment%3A%20%3C%2Fstrong%3EBootstrapped%2C%20with%20support%20from%20Insead%20and%20Egyptian%20government%2C%20seed%20round%20of%20%3Cbr%3E%243.6%20million%20led%20by%20Global%20Ventures%3Cbr%3E%3C%2Fp%3E%0A
COMPANY PROFILE
Name: HyperSpace
 
Started: 2020
 
Founders: Alexander Heller, Rama Allen and Desi Gonzalez
 
Based: Dubai, UAE
 
Sector: Entertainment 
 
Number of staff: 210 
 
Investment raised: $75 million from investors including Galaxy Interactive, Riyadh Season, Sega Ventures and Apis Venture Partners
Nayanthara: Beyond The Fairy Tale

Starring: Nayanthara, Vignesh Shivan, Radhika Sarathkumar, Nagarjuna Akkineni

Director: Amith Krishnan

Rating: 3.5/5

The specs
 
Engine: 3.0-litre six-cylinder turbo
Power: 398hp from 5,250rpm
Torque: 580Nm at 1,900-4,800rpm
Transmission: Eight-speed auto
Fuel economy, combined: 6.5L/100km
On sale: December
Price: From Dh330,000 (estimate)
How to protect yourself when air quality drops

Install an air filter in your home.

Close your windows and turn on the AC.

Shower or bath after being outside.

Wear a face mask.

Stay indoors when conditions are particularly poor.

If driving, turn your engine off when stationary.

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Hamilton’s 2017

Australia - 2nd; China - 1st; Bahrain - 2nd; Russia - 4th; Spain - 1st; Monaco - 7th; Canada - 1st; Azerbaijan - 5th; Austria - 4th; Britain - 1st; Hungary - 4th; Belgium - 1st; Italy - 1st; Singapore - 1st; Malaysia - 2nd; Japan - 1st; United States - 1st; Mexico - 9th

If you go
Where to stay: Courtyard by Marriott Titusville Kennedy Space Centre has unparalleled views of the Indian River. Alligators can be spotted from hotel room balconies, as can several rocket launch sites. The hotel also boasts cool space-themed decor.

When to go: Florida is best experienced during the winter months, from November to May, before the humidity kicks in.

How to get there: Emirates currently flies from Dubai to Orlando five times a week.

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